Dry bulk shipping, Tankers Fall Down
All stocks under Drewry Maritime Equity Research (DMER)’s dry bulk coverage were down and recorded double-digit negative returns, taking cues from vessel earnings.
The BDI shed its gain of the previous two months and nudged down 20% m/m in August led by a fall in the Capesize index. Capesize rates were adversely affected by ample tonnage and lacklustre demand from China.
For example, spot rates in the Pacific region dived 30% due to limited enquiries from mining companies and the average daily earnings in the Atlantic rim also dropped ~34% on account of sluggishness in the Transatlantic iron ore and coal trade. Freight rates in other vessel segments were much stable, thanks to ECSA and US grain exports.
Gas shipping: The swoop in oil prices roiled gas shipping stocks, which lost 8% m/m on an average in August. Disappointing 2Q15 earnings prompted us to revise down our earnings and fair value estimates for stocks under our coverage.
Nevertheless, we opine that the recent correction in share prices provides a good opportunity to accumulate considering stable long-term fundamentals and attractive valuation. Further, LNG shipowners have started pooling vessels for better utilisation and cost saving in a challenging freight market.
The lack of arbitrage in propane prices has impacted VLGC earnings in West of Suez, while newbuild deliveries and third party relets are keeping rates in check in East of Suez.
Container shipping: Container shipping bellwether – Maersk Line downgraded the market growth rate to 2-4% from an earlier estimate of 3-5% for 2015, indicating a slowdown in container shipping.
However, destocking of goods in China due to the upcoming holidays and approaching peak season, albeit delayed, may bring some respite to the industry in the near term. Carrier financials in 2Q15 have been better than last year, primarily driven by lower bunker prices.
However, the industry trend also indicates a declining operating margin vis-a-vis the previous quarter.
Tankers shipping: Tanker freight rates were impacted by the planned refinery maintenance in the US and Europe, ahead of winter.
Chartering activity in the Arabian Gulf also declined on concerns over weakening demand due to a possible slowdown in China and increasing imports by India from West Africa. After the recent correction in share prices, tanker operators look attractive at current price points, in our view
Port operators: Market sentiment remains weak as key economic data suggests that the Fed’s impending interest rate hike may be premature for the global economy.
Amid laggard throughput growth, port operators are struggling to maintain margins through a combination of pricing discipline and cost rationalisation. Port operators with favourable financing and strong balance sheet position will be looking to expand their presence as the industry consolidates.
